INTERNATIONAL BUSINESS; Auto Tariff Pact Eludes South Americans

In a potentially serious blow to the $15 billion auto industry in South America, Argentine and Brazilian officials have failed to complete a long-awaited agreement for common car tariffs that auto executives had hoped would be ready for signing at a regional economic summit meeting that opens here today.

Officials of the two countries said they might still be able to draw up a common auto trade policy by the end of the year, but independent analysts said presidential campaign politics in the two countries could stall progress until the end of 1999.

South American automobile executives expressed concern that companies including Volkswagen and Daimler-Benz might delay planned investments valued at more than $500 million until Argentina and Brazil ironed out their trade differences.

Argentina and Brazil, the two dominant countries in a four-nation South American common market called Mercosur, have come to a preliminary agreement that would set a tariff of 35 percent on cars produced outside the region. It would have gone into force in 2000. The tariff would represent a slight increase from the 33 percent tariff now levied by Argentina but a significant decrease from the 45 percent rate of Brazil, by far the largest market in South America.

The two countries would allow companies that currently have production plants in the region -- including Ford, General Motors, Volkswagen and Fiat -- to import cars from elsewhere at a rate of 17.5 percent. Brazil and Argentina have also agreed to drop all tariffs in 2000 for cars and parts produced in the Mercosur countries, which also include Uruguay and Paraguay.

But two major stumbling blocks remain before any agreement can be signed, officials said.

Argentina has called for Brazil to drop all subsidies granted to the local car industry by Brazilian state governments. Brazil has said that under its federal system, it cannot easily void agreements made by the states to attract companies to build plants in their jurisdictions.

The four Mercosur countries have also not agreed on a formula by which each country would be assured of producing components for autos assembled in the region.

An error has occurred. Please try again later.

You are already subscribed to this email.

Brazil, which has the most advanced car industry of the four, opposes any national content requirement as long as 60 percent of the components of cars receiving Mercosur free trade benefits are produced in any one of the four countries.

Jose Botafogo Goncalves, Brazil's Minister of Industry, told reporters this week that the four Presidents would sign a declaration at their meeting here listing general concepts they agreed on for a future auto tariff agreement. But he added that any elimination of local subsidies as demanded by Argentina would be, ''juridically speaking, impossible.''

Several analysts expressed skepticism that any significant progress on an auto agreement would be reached over the next two days here in Ushuaia, the world's southernmost town, in the Tierra del Fuego region.

''Mercosur is not moving as fast as it did in the early 1990's,'' said Ricardo Lopez Murphy, chief economist at the FIEL-Latin American Economic Research Foundation, an Argentine center. ''The reform process is stagnant.''

The impasse comes at a time when higher interest rates and declining economic growth have slowed what had been years of booming car production and sales in Argentina and Brazil. Manufacturers have estimated that car sales in Brazil this year will fall below 1.8 million, a 10 percent decline from 1997 levels.

The drop-off in sales has forced several temporary plant closings in Brazil, although both Ford and General Motors are building new assembly plants in the southern state of Rio Grande do Sul.